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Where do we stand in a higher interest rate environment?

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By Michael O’Connor

You may have noticed that financial media have an unhealthy obsession with interest rates, but our fear of higher rates is justifiable for the most part.

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Higher interest rates impact markets in several ways.

From a financial perspective, the future cash flows of a company are discounted by interest rates; therefore, higher interest rates mean a lower present value of future cash flows.

It’s simply ‘A bird in the hand is worth two in the bush’ situation. Higher interest rates mean the money companies are forecasting they will make in the future is now worth less in today’s terms once higher interest rates/inflation have been considered.

From a relative value perspective, the equity risk premium is reduced. The equity risk premium is the extra returns over the risk-free rate that investors expect to receive given the higher risks they are taking by investing in the stock market versus the risk-free rate.

If we consider US Government Treasury bills as the risk-free rate, then as the interest rates being offered on these T-Bills increase, the hurdle rate equities need to beat to justify the additional risk being taken also increases.

The interest rate on one-year Treasuries just a year ago was 0.07%, so stocks were the obvious choice versus an asset that offered zero returns. But the 1-Year Treasury Rate has jumped 60x in under a year to over 4%.

In investing, everything is a relative choice, so as interest rates increase in risk-free assets, equities become less compelling versus their risk-free counterpart.

The questions become, why take on the extra risk of the stock market when I can get a guaranteed 4% from a risk-free asset?

This reduction in the equity risk premium can lead to an outflow from equities into more risk-averse fixed-income products. This reduction in demand for stocks can result in lower valuations over time.

From an economic perspective, higher interest rates will increase the cost of credit.

Higher interest rates make loans more expensive for both businesses and consumers. As a result, everyone ends up forgoing upcoming projects or spending more on interest payments.

This reduces the demand side of the economy by reducing the supply of money in circulation, leading to lower inflation (in theory) and weaker economic activity.

This slowdown in consumer spending will reduce business activity and negatively affect company earnings.

And as company earnings fall, so too do the prices people are willing to pay to invest in these companies.

So where do we stand now that we are in a higher interest rate environment?

Market Outlook

Inflation remains persistent, and as such, interest rates look set to increase further, creating less than favourable economic conditions.

But whether the economic outlook is good or bad is never the question we are trying to answer as investors.

The only question that matters is how much of this negative news is already priced into the market.

With the S&P 500 currently down 23% YTD, it appears that a mild recession has already been priced in.

The possibility of a deep recession is still very much on the table as inflation persists. Still, as data continues to soften, we see encouraging signs that inflation may have peaked.

You’ll never time the markets perfectly, and short-term risks remain, but the long-term expected returns of the stock market have improved dramatically in recent months.

I, for one, am long-term bullish on the stock market. These current prices make it an attractive time to build out my long-term positions.

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Paralympic legend Jason Smyth visits St Brendan’s

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Paralympic legend Jason Smyth visits St Brendan’s


World renowned Paralympian and world record holder Jason Smyth paid a visit to St Brendan’s College on Wednesday afternoon as part of a high profile visit to Killarney.


The six time Paralympic gold medallist spoke to second year students from St Brendan’s College, alongside students from neighbouring schools St Brigid’s Presentation Secondary School and Killarney Community College.
The interactive talk and interview took place ahead of World Sight Day, with the legendary sprinter sharing his personal journey with Stargardt disease, a genetic eye condition that left him legally blind at eight years old.
The Derry native, who holds the world record as the fastest Paralympian on earth over 100 metres, offered inspiring insights into overcoming physical adversity and achieving success at the highest level of world sport.
The school visit formed the opening leg of his Killarney schedule before he took centre stage later on Wednesday evening at The Killarney Plaza Hotel & Spa.
Smyth headlined An Evening with Paralympian Jason Smyth, an event organised by the Killarney Chamber of Tourism and Commerce as part of its winter schedule, sponsored by AIB.

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Deerpark Retail Park placed on market for fifteen million euro

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Deerpark Retail Park in Killarney has officially been placed on the market with a guide price in excess of 15.4 million euro, excluding VAT.

International real estate firm Cushman & Wakefield has been appointed as the sole sales agent to handle the high-profile commercial property sale on behalf of its current owner, Investcorp.

Investcorp, a global investment management firm headquartered in Bahrain, had previously acquired the prominent shopping complex.


The sale represents one of the largest commercial property offerings to launch in County Kerry this year.

Located roughly 1.3 kilometres west of Killarney town centre, the scheme enjoys strong regional connectivity and sits adjacent to independently owned operations including a Tesco Extra store, a Tesco petrol filling station, JYSK, and Aldi.


Constructed in 2006, the development extends across approximately 10,482 square metres, or 112,835 square feet.

The scheme comprises a mix of modern retail warehouse units and a complementary neighbourhood centre, offering 13 individual units in total with Part Open and Part Bulky Use planning permission.

The units range in size from 94.6 square metres up to 1,994.9 square metres. Visitors have access to approximately 248 customer parking spaces across the commercial grounds.

The park is currently 100 per cent occupied by a strong line-up of established national and international brands.

Key retail tenants include Marks & Spencer, Boots, DID Electrical, Maxi Zoo, and Mountain Warehouse.

The neighbourhood centre element accommodates service and convenience operators such as Costa Coffee, Card Factory, and Salon B.

The first-floor accommodation is fully let to Peak Performance Academy, which provides additional rental diversification.

Additionally, the scheme benefits from an agreement with Tesla to operate eight electric vehicle charging bays within the customer car park.


Commercial figures show that the property generates a total current rental income of 1,326,458 euro per annum, with a weighted average unexpired lease term of 4.45 years to break options and 6.46 years to lease expiry.

Cushman & Wakefield noted that the quoted guide price of 15.4 million euro reflects a net initial yield of 7.83 per cent, assuming standard purchaser costs of 9.96 per cent.

The selling agents highlighted that the fully occupied asset offers investors an attractive income profile alongside scope for additional income generation through parking commercialisation.

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